Financial development and innovation-led growth: Is too much finance better?
Stylianos Asimakopoulos () and
Journal of International Money and Finance, 2020, vol. 100, issue C
We show that the expansion of financial sector may hurt innovative activities and hence the innovation-led growth, using data on 50 countries over the 1990–2016 period. Countries with higher level of financial development are found to have a smaller positive or insignificant effect on innovation. The marginal effect of innovation on growth is a decreasing function of financial development. Using a dynamic panel threshold method we re-examine the possible non-linearity between finance, innovation and growth. We find that innovation exhibits an insignificant effect on output growth when credit to the private sector exceeds a threshold level of about 60% as a share of GDP. These results are not driven by banking crises, the long run effect of 2007–2008 financial crisis, or the ongoing European sovereign debt crisis.
Keywords: Financial development; Innovation; Growth; Threshold effect (search for similar items in EconPapers)
JEL-codes: G15 O31 O40 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:100:y:2020:i:c:s0261560618307587
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